Putting Legal in Its Place: Why Companies Shouldn’t Be Run by Execs with ‘No’ as Their Middle Names

Companies have gone from success to failure because they allowed Finance or the Legal department to have excessive control over the business.

SHARE

SHARE

Over the years, I’ve watched a lot of companies go from success to failure because they allowed Finance or the Legal department to have excessive control over the business. These organizations do provide very valuable advice, but often the executives learn that while there is risk in approving an action, there is no risk in saying no and, as a result, no becomes their go to response. This hasn’t been the case at Apple, Intel and Oracle, all of which not only are scary with regard to litigation capability, but their legal and finance teams dance to tune the CEO plays, they don’t make the CEO and his staff dance to their tune.

There are clearly some times where it is important to listen to your legal and finance teams. For instance, when HP bought Autonomy, CFO Cathy Lesjak had been against the deal because she was concerned about the integrity of their disclosures. She was overridden and the thing turned into one of the biggest messes of the decade. Clearly, running blindly into a stupid decision is equally stupid, and getting the feedback, and listening or reading it before a decision is made, will result in better decisions or, at least, a much firmer idea of the risks you are taking and a better chance of mitigating them. But this is understanding risk; it is when these groups move from advice to control that they become company killers.

Successful firms are all about understanding and accepting “reasonable” risks. For instance, when Steve Jobs wanted to launch the iPhone, he was told he couldn’t have that name because Cisco owned it and had its own shipping iPhone product. He accepted the risk and, after the fact, negotiated a deal with Cisco in which that firm released the name to Apple and got a closer relationship with Apple, which was a win/win, in exchange. The iPhone was a massive success.

However, when it came to the iWatch, also a name that Apple didn’t own, Apple walked away from it and instead launched the Apple Watch. Certainly, no risk of litigation, but the product’s sales are a fraction of what they otherwise might have been with the proper name and branding. In the first case, and in the same company, legal got it done over their own objections. In the second case, legal likely won but Apple clearly lost. Under Jobs, the firm was willing to take on one of the most powerful companies in the world. Under Tim Cook, it was scared off by a few far smaller firms that sort of owned, but likely couldn’t protect, the iWatch brand.

Now could the Cisco thing have blown up in Jobs’ face? Sure. But Jobs’ entire history was one of taking risks. The iPhone was based on a design that had sold poorly. But he bet the firm that he could create a successful version and that decision resulted in making Apple the most valuable company in the world. So, huge risk, but equally huge rewards.

This is what top executives are supposedly paid to do: Balance risks to rewards, and take reasonable gambles that drive corporate growth.

One of my favorite Jobs examples was against Intel, which is also very litigious. It was running a campaign using Bunnymen to promote the Pentium. Most legal teams have a cow if you create a campaign that directly disparages a competitor’s product and Intel was famous for being so aggressive with litigation that, even if you won, you’d likely go out of business. Yet Jobs’ Apple ran a series of very damaging ads that made fun of Intel’s Pentium 2. Later, it ran one of the most successful campaigns, regularly making fun of Bill Gates, the richest guy in the world. And despite likely giving the Apple legal folks heartburn, nothing really happened.

Wrapping Up: Remember Who Is the Boss

The market is often defined by those who take risks and it regularly rolls over those who too aggressively avoid them. My whole point is that Legal and Finance both have really important jobs to do, and they are a critical part of the firm’s defense and operations, however, it is when they start running the company that they move from asset to liability. The most successful CEO, Jobs, knew how to use these organizations as critical resources rather than have them become his boss. This is a lesson way too many people either haven’t learned or too often forget.

Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm. With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+

Advertiser Disclosure: Some of the products that appear on this site are from companies from which TechnologyAdvice receives compensation. This compensation may impact how and where products appear on this site including, for example, the order in which they appear. TechnologyAdvice does not include all companies or all types of products available in the marketplace.